Small loans could make a big difference for the poor

In four rural villages outside of Cairo, researchers led by Baker Institute fellow Mahmoud El-Gamal are testing micro-lending (or small loan) systems designed to help the poor help themselves. The loan amounts are very modest — anywhere from $5 to $100 — but could make a vast difference in the lives of villagers who might use the funds to grow vegetables or raise chickens for market, or perhaps buy a sewing machine. “The idea isn’t to tell them what to do with the loan, but to allow communities to pull themselves up by their own bootstraps,” El-Gamal said.

Since last fall, El-Gamal and his team, funded by the institute’s Kelly Day Endowment on the Status of Women and Human Rights in the Middle East, have tested two lending models for the project: bank loans based on trust and accountability instead of collateral (such as those pioneered by the Grameen Bank in Bangladesh); and credit union-style loans based on Rotating Savings and Credit Associations, which rotate interest-free credit among its members and are therefore acceptable in all religions that forbid usury, including Judaism, Christianity and Islam.

El-Gamal, working closely with researchers from Yale and The University of Texas at Dallas, has begun to analyze the data from field experiments in the towns of Dessaya, Feesha, Aryamon and Tahala for an upcoming report. It could take 10 years to complete the study and put a concrete system into place, he said. “This is a very long-term research program, but what we’re trying to do is find the prototype for the poor to leverage their own resources to lift themselves out of poverty,” El-Gamal said.